What is the ladder of economic development?

The ladder of development is a useful concept that we first found in Jeffrey Sachs’ excellent book ‘The End of Poverty‘. This concept provides a useful framework for the discussion of economic development with regards to poverty reduction. This is a conceptual tool, not necessarily a framework for understanding all of economics. This idea is intended as an illustration of the following major ideas.

Climbing the ladder

Imagine a ladder where the lowest rungs of the ladder represent the poorest nations and the upper rungs represent richest nations. We are referring to income per capita, since total wealth of a nation can be misleading.

The nations on the lower rungs want to climb the ladder. Even the poorest people of the world have some knowledge of the wealth of the developed world. They are interested in gaining for themselves the positive effects of increased wealth. Climbing the ladder of economic development means the accumulation of wealth per capita, generally leading to healthier, happier, and longer-lived people. Increased wealth can lead to the end of squalor, hunger, backbreaking labour, and epidemic disease.

Only some nations can climb on their own

Climbing the ladder, increasing income per capita, depends on a multitude of issues. For instance, a rapidly increasing population makes it very difficult for wealth-per-person to increase, since wealth growth would have to outpace population growth. There are many other factors that can hamper economic development. There are also a number of misconceptions about the reasons that poverty exists in these areas. We will not go into great detail on these factors here. It should suffice to say that development is not guaranteed, even for those nations that have already found a foothold on the ladder.

Extreme poverty is below the ladder

Those places that are in extreme poverty however are below the ladder of development. They have not yet been able to put a foot on the ladder, and are unable to do so on their own. The definition of extreme poverty is a state in which all efforts go towards survival. It is ‘subsistence living’. This is also termed the poverty trap because of the tendency for this form of poverty to be self-reinforcing. We say that nations or areas that are in the grips of extreme poverty are below the ladder of development. They do not yet have the economic and infrastructure basis necessary to develop further. That is, they cannot even reach the first rung of the ladder on their own.

The poverty trap

Many places have a large number of people who are too poor to be able to save money year-to-year because all of their resources are being put towards their immediate survival. No extra money or effort is available for education, research, or infrastructure investment. Markets do not help the people caught in this trap because they often have no surplus to sell. Additionally, they may be unable to trade effectively because of restrictive transportation costs or poor infrastructure. These are also portions of the world that are often ravaged by disease, famine, and political instability.

These effects lead to an ever-deepening cycle of poverty, where each generation is more poor per capita than the previous one. This vicious cycle is termed the poverty trap. The world bank estimates that 1.4 billion people live in extreme poverty, as of August 20081. See our other post detailing the feedback effects of extreme poverty.

Breaking out of the poverty trap

Help from the developed world is required for these people to get their foot on the first rung of the ladder of development. They need basic infrastructure to meet their needs for food and clean water. They need help acquiring education and developing expertise. They require help from the outside world so that they can ensure their basic survival. It is only after basic needs are met that economic development has a chance to move forward.

9 thoughts to “What is the ladder of economic development?”

While generally agreeing with the ladder of economic development concept, I’ve heard from some people in areas where some of the “extreme poverty” exists that the Millennium Development Goals contributions and American consultants only add to resentment still felt from European colonialism.

I’ve contributed to these causes and still believe in them, but I hope people on the ground or coming into personal contact with leaders and the folks in extreme poverty will be careful not to project a superior attitude.

For example, might it be true that not every extreme poverty situation requires “help from developing nations”? Let’s be careful not to slap a “one size fits all” approach on every place. Just like all community development work, cultural sensitivity is required.

When we talk about help from the developed nations, are we referring to SEZs that are to create jobs but at the same time create slavery in the so called free world? Are we also talking about the developed nations dismantling local economies and creating unemployment in the first place to respond to which then turn these people of the poor world into mere numbers in their factories? And also are we talking about ignoring all the help that these developed nations had from these third world countries when they colonized them and looted all their “wealth” and created poverty as it can be seen today? I am curious.